"Coal price intervention" to steel city impact geometry?

On the evening of October 19, the National Development and Reform Commission (NDRC) published an article on its website titled "NDRC studies intervention measures on coal prices in accordance with the law".The article pointed out that the recent rapid rise of coal prices, successive record highs, greatly pushed up the production costs of downstream industries, adversely affected the power supply and winter heating, all sectors of society strongly reflected.On the evening of the 19th, The Zhengshang House announced that after a decision to study, since October 20, 2021 when the night trading, thermal coal futures contract limit adjusted to 10%, that night thermal coal, coking coal, coke futures main contracts are down by the limit, while driving rebar steel and hot coil futures main contract shock down.All items in the domestic spot market fell to varying degrees on May 20.

At present, there is an obvious imbalance between supply and demand in the global energy industry, leading to a sharp rise in global energy prices. According to customs statistics, in the first three quarters of this year, the price of imported crude oil rose by 32.8%, the price of imported coal by 16.3%, and the average price of imported natural gas by 5.1%.While domestic thermal coal prices rose 137% year on year, domestic coking coal prices rose 267%, domestic metallurgical coke prices rose 117% year on year.So the country to the coal price intervention and will be on the domestic steel market what kind of impact?

First, from the point of view of market prices, the state intervention on coal price is the most direct impact would lead to coal prices to return to the rational, so as to alleviate the domestic situation of electricity supply tight, for iron and steel production enterprises also eased the pressure of soaring raw material cost directly, there will be a corresponding decrease in the cost of steel production space.

Secondly, from the point of view of energy supply, the release of the domestic coal production capacity is accelerating, since September, the National Development and Reform Commission has allowed 153 coal mine production capacity of 220 million tons/year, in the fourth quarter could increase more than 50 million tons, will be 38 cities construction coal mine safety production conditions in emergency for coal mine, allow for periodic release of production capacity,Total production capacity is 100 million tons per year.At the same time of increasing the supply, the intervention of the state on the coal price will be conducive to coal-fired power generation enterprises to generate more power and play a positive role in promoting the "energy supply guarantee".On October 20, the National Energy Administration (NEA) issued a notice on promoting the development of new energy power generation projects. The notice noted that China's electricity consumption has grown rapidly this year, and power supply and demand have continued to be tight.To speed up the grid wind power, photovoltaic power generation project construction, increasing the supply of clean electricity is beneficial to relieve the tense situation of electricity supply and demand, but also to boost the energy consumption of the double control targets, to promote low-carbon energy transition, the guarantee of power supply will be conducive to the stability of the domestic demand for hong kong-listed, especially for manufacturing industry is particularly important.

Third, from the perspective of energy consumption, under the background of "carbon neutrality and carbon peak", China's economy will gradually transition to low-carbon, and the consumption of electricity will be restricted for the industries with high energy consumption. Especially at the critical moment of "energy supply guarantee", the industries with high energy consumption will become the focus of "care".On October 8, China's regular session proposed to adjust the fluctuation range of electricity prices in the electricity market from 10% and 15% respectively to 20% in principle, and to make classified adjustments. For energy-intensive industries, prices can be formed by market transactions, not restricted by the 20% increase.For the iron and steel industry, "power limit" will mean a decline in output, at the same time, "high electricity price" will mean a rise in costs, there have been many provinces and cities to promote electricity reform, for steel production enterprises to implement electricity price float 20-50%, for example, this will eat 60-70% of the profits of electric furnace steel.

In the short term, the state's intervention in coal prices will significantly ease the pressure of tight supply in the domestic coal and power markets, and the impact on the domestic steel market will be in many ways. The decline in direct raw material prices will PK the rise in electricity costs, and the decline in steel market supply will PK the stability of domestic steel demand.